China's holdings of Treasury debt rises in August

China, the largest holder of U.S. Treasury debt, increased its holdings for a second straight month in August after two months of declines.

China's holdings of Treasury securities rose to $868.4 billion in August, the Treasury Department reported Monday. That's up 2.6 percent and followed a smaller gain of 0.4 percent in July. China's holdings had fallen 2.8 percent in June and 3.6 percent in May.

The debt figures are being closely watched at a time when the U.S. government is running $1 trillion-plus annual deficits. A drop in foreign demand could lead to higher U.S. interest rates.

Other owners of large stakes in U.S. Treasuries also increased their holdings in August.

Japan, the second largest foreign holder, boosted its stake by 1.9 percent to $836.6 billion. Britain, ranked No. 3, had a 19.8 percent jump in its holdings to $226.6 billion.

Total holdings of Treasury securities by all countries rose to $2.28 trillion, an increase of 1.4 percent from July.

Net purchases of long-term securities, a category that includes both government debt and corporate bonds, rose by $128.7 billion in August, more than double the $61.2 billion increase in July. It was the largest one-month jump since net purchases rose by $141.4 billion in March.

The government reported Friday that the federal budget deficit totaled $1.3 trillion for the 2010 budget year, which ended on Sept. 30. That was down $122 billion from the record $1.4 trillion deficit set in 2009, but it was still the second highest deficit in dollar terms in history.

Even with massive budget deficits, the interest rates the government has had to pay for this debt have remained low. That's because the weak economy has depressed borrowing by the private sector and the Federal Reserve has kept a key interest rate it controls at a record low in an effort to jump-start economic growth following the severe 2007-2009 recession.